Yahoo Finance Germany faces a bleak winter – but that makes this stock even more appealing for investors
The reward investors have given to Sirius Real Estate, one of the holdings in our Income Portfolio, for increasing its second‑half dividend by almost 20pc in June has been to mark the shares down by 26.5pc since then.
That not inconsiderable fall pales next to the 43pc decline since the shares’ record high reached in early January.
The share price falls take the yield, with a little help from the effects of the weakening pound on the euro‑denominated dividend, to 4.8pc, compared with 4pc when we reported the rise in the divi on June 17.
As we have observed countless times, a high yield and a rising dividend do not belong together: the former is normally the market’s way to say it sniffs a dividend cut in the offing.
The possible explanations for this anomaly strike Questor as the following: either investors have drastically changed their view of the stock’s prospects over the past few months as a result of the worsening economic outlook, or the market has allowed the pervasive pessimism to trump hard numbers and has made the shares far too cheap.
This column favours the latter explanation. As we wrote yesterday in connection with another fund that invests in German property, residential in that instance, it must be hard for investors to put money into the country when it faces such a bleak winter.
To be fair to those who take this pessimistic view, while residential tenants are likely to do anything rather than stop paying the rent on their flats, if businesses go bust as a result of the power rationing widely predicted in Germany, or simply because rising costs destroy their profit margins, Sirius will cease to be paid its rent.
Against this we would point out that its tenants largely survived the pandemic – Sirius collected 98.4pc of the rent due in the year to March and 98.2pc the previous year – and that the government in Berlin is unlikely to stand by and do nothing as this second emergency engulfs the country.
Meanwhile the chairman of Sirius Real Estate, Daniel Kitchen, said at the annual meeting two months ago: “With a wide range of workspaces, flexible contracts and low average rents, the company is defensively positioned.”
It would of course be foolish to deny the risks when the world is as uncertain as it is now. But in Questor’s view the company’s yield, its impressive dividend growth record and its 10.5pc discount to net asset value more than price in those risks and suggest that the balance between risk and reward is tilted in favour of anyone who buys at the current price.
Those who have not yet followed our earlier recommendation to buy a stake are therefore advised to do so now; the shares are a firm hold for the Income Portfolio.
Questor says: hold
Tickers: SRE
Share prices at close: 79.2p
Update: Regional Reit
We could repeat much of what we’ve just said about Sirius of Regional Reit, which owns offices outside London. Its shares have been falling steadily since Christmas and now stand at 66.6p.
As it happens, if the trust pays the same 1.65p‑a‑share dividend in the final two quarters of the year that it paid in the first two, its annual divi will be 6.6p – which would make the shares yield almost exactly 10pc. (In fact, as we have written in the past, we think there is every chance that the final payment will be more than the other three, as it has often been in the past.)
Regional too has raised its dividend, in May, so here we have a more extreme combination of a high yield with a recent increase in the divi.
While many of the worries about the prospects for German businesses apply equally to companies on these shores, so too do the counter arguments: Regional too had an excellent record of collecting rents during the pandemic, to suggest that its tenants were able to survive that crisis, while the British Government said yesterday that it would help businesses as well as families to cope with sky-high energy bills.
This looks like another share price that has been driven too low by the sense of doom that is hard to avoid at present. We suspect that long‑term investors who buy Regional’s shares now will be glad they did in a year or two’s time. As with Sirius, they are a hold for our portfolio.
Questor says: hold
Tickers: RGL
Share prices at close: 66.6p
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